Electricity customers shopping around

Whether competition reduces the price of electricity isn’t always clear, economists who study the question have found, but more than one in three Pennsylvanians has decided that shopping for electricity gives them a better deal.

A vigorous market developed in the past four years, letting Pennsylvanians review offers from more than 50 companies. Customers choose based on price or whether the electricity comes from renewable sources such as wind, solar or geothermal systems.

The long winter pushed up prices, surprising customers whose contracts had variable rates and driving 75,000 back to their default suppliers this spring. Still, as of Wednesday, 2.15 million customers, or 38 percent of potential shoppers, have switched.

Within the territory of PPL Electric Utilities, which includes Hazleton and much of Northeastern and central Pennsylvania, electric choice has been even more popular. Some 46 percent of customers have swapped electric suppliers, including Paul Wirth, a spokesman for PPL Electric Utilities.

“We think all customers should do it. There is money to be saved,” Wirth said.

Acting Pennsylvania Consumer Advocate Tanya McCloskey said the state’s prices have drawn even with the national average after competition began, but they were 15 percent higher in 1996.

Her predecessor, Sonny Popowsky, the consumer advocate for 30 years, maintained that customers benefit even if they don’t switch because competition reduces the prices offered by default companies, such as PPL.

PPL charged 10.45 cents per kilowatt-hour (kWh) four years ago, but its price moves to 9.04 cents today, which is up from 8.75 cents last quarter.

Whether competition reduces prices is a question that researchers Adam Swadley and Mine Yucel of the Federal Reserve Bank in Dallas studied in 17 states and the District of Columbia.

“The effects of a competitive retail electricity market are mixed across states, but generally appear to lower prices in states with high participation rates,” they wrote in the journal Energy Policy in December 2011.

Expiration of rate caps — which happened at PPL in 2010 — and jumps in prices of other fuels have clouded the correlation between competition and price.

When Swadley and Yucel modeled the effect of different factors, they concluded that electric rates increase when caps expire or prices of coal and gas go up. Prices tend to fall because of competition if the market is large, if customers participate highly or if a large share of electricity comes from hydropower. Competition also reduces the markup that wholesalers add to retail prices, they wrote.

This winter, the U.S. Energy Information Administration reported “unprecedentedly high prices at times.” Prices reached 30 cents per kilowatt-hour on the PJM Interconnection, the electricity market that encompasses Pennsylvania.

Price surges scared some 75,000 shoppers out of the market in the past 13 weeks, Robin Tilly, a spokeswoman for the Pennsylvania Public Utility Commission, said.

Some customers didn’t realize they had variable rates and others were switched to variable rates when their contracts ended, Tilly said.

The PUC is considering rules that will allow customers to switch companies within three days, a process that can take weeks now.

Both the PUC and the consumer advocate said customers can find plenty of offers for fixed rates at the website papowerswitch.com.

Customers should note whether companies charge a fee for canceling early, especially if they plan to move before the contract ends.

Householders willing to take the risk of variable rates still should ask how the rates are calculated, whether they will know their rate before or after they get a bill and if there is a limit on how high the rate can go.

Some companies offer electricity generated by wind or other renewable energy sources. Green-e.org lists companies that have certified that their energy comes from renewable sources.

In other plans, companies purchase renewable energy certificates, which are traded on a market and fund projects that generate electricity from renewable sources.

All companies must obtain 10.72 percent of electricity from renewable sources this year, and the requirement rises to 18 percent in six years.

kjackson@standardspeaker.com

570-455-3636

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